International portfolio investment of Canadian pension funds is restricted to 20 per cent of the value of assets. This policy increases non-diversifiable risk in portfolio returns, which entails costs for pension plan beneficiaries. We provide new estimates of the cost of this policy by comparing performance of mutual funds that are constrained by the limit and those that are not. We further examine the effects of an increase in the limit, from 10 to 20 per cent, during the early 1990s. The evidence suggests the policy has had a significant negative effect on risk-adjusted returns to retirement savings in Canada. Our estimates imply that a movement in the limit from 20 per cent to 30 percent would increase average annual returns by 0.31 per cent, which corresponds to an increase of 9.9 per cent in terminal portfolio wealth over a 20-year period.Draft, January 2000: PDF.